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Rebuilding will hand state $2bn

Michael Bachelard

THE rebuilding projects in fire-ravaged communities — where more than 2000 homes and hundreds of businesses were destroyed — will inject up to $2 billion into the Victorian economy, some economists believe.

Others, however, believe the human cost of the fires — the grief, medical bills and lost productivity — will outweigh this boost and drag down the economy.

Building companies in fire-affected areas stand to be among the biggest beneficiaries of the new activity, with the State Government vowing to favour local businesses in the reconstruction effort.

Marysville builder Leigh Jowett says his phone has been running hot with local people wanting to start rebuilding. But Mr Jowett, whose own home is still standing, said it would be "quite a few weeks" before he could even begin getting materials through to the devastated town, which is still largely closed off to outsiders.

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"It's a heck of a way to get a job and you don't want it that way, but there's going to be a lot of work going on here, a lot of commercial work as well as residential," he said.

ANZ bank economist Saul Eslake said the destruction of homes did not count as an economic negative. Building new infrastructure, private and public, was new economic activity.

He calculated that it could add between $1 billion and $2 billion to GDP, or up to 0.7 per cent of the state's economy.

In the midst of a global financial crisis, in which building activity is expected to fall dramatically, it will provide significant help to builders.

Building materials are largely also made in Victoria, and those companies will benefit from the added activity.

The latest figures show that 2029 homes were destroyed and 6760 insurance claims worth $810 million have been lodged.

"There is bound to be lots of spending on repairing of transmission lines, schools, roads, water storage, phone lines, any work Melbourne Water might do — public spending," Mr Eslake said.

Money given to charity and then spent by bushfire victims can also provide an economic boost, but only if the donations came out of people's savings. If they came from reductions in other spending, the economic effect will be neutral.

Insurance payouts are also a boost to the economy but, according to Mr Eslake, insurance companies are likely to increase premiums to pay for them, which would claw that extra money back.

Another economist, Peter Brain, agreed the spending would boost the economy. But he warned it would probably be spread out over up to 10 years.

An economist from the Victorian Employers Chamber of Commerce and Industry, Chris James, said the human cost of the bushfires — the grief, loss of life and productivity — would outweigh any economic boost.

?Calm conditions yesterday helped firefighters battling blazes, but officials warned of severe threats again across the state from tomorrow night. A spokesman said temperatures in the 30s were expected, along with winds of up to 80km/h on Tuesday.

Also yesterday, new teams of soldiers joined the search for traces of at least 30 people still believed missing after the February 7 bushfires.